Yield-sensitive assets like REITs continue to get whipsawed as investors handicap the likely move in interest rates. The received wisdom is that Fed tightening will take a wrecking ball to REIT prices, and REITs have been selling off for most of 2015 in anticipation. But is it true? If interest rates really do rise significantly, will REITs suffer? Let’s take a look at past tightening cycles to see.
We’ve had five periods of extended tightening since 1981. In three of them, REIT prices did indeed suffer. But in the other two — and keep in mind, that is fully 40% of the total — REIT prices actually did very well. The tightening cycle of the mid-2000s coincided with one of the greatest bull markets in the history of REITs as an asset class. Let’s step away from the Federal Reserve for a second. As long-term income investments, REITs should be less affected by Fed policy and more affected by moves in long-term bond yields.